Pay Attention To Innovation And Intangibles -- They're More Than 80% Of Your Business' Value

Businesses today have challenges capturing innovation and even more of an uphill battle with intangible asset valuation and management. These non-tangible assets are over 80% of the average business’ value. When it comes to startups, the number is even higher. That value is the number you are using to raise money, sell your business, or attract financing.

Andrew Sherman speaks nationally on this topic and recently spoke on the concept of the “donut hole” at the America’s Small Business Development Centers’ (ASBDC) annual conference.

Do the math

Think of what any startup has on its balance sheet for assets. In those early days, what tangible assets would that startup possess besides cash raised from friends, family, or investors? Perhaps some computers or desks? Many startups are BYOD (bring your own device) and work out of co-working spaces so invest very little on furniture and fixtures. When Traklight started raising money, our balance sheet only had our prepaid security deposit on the asset side.

If you turn to the liability side of that same balance sheet, there is often money owed to all the suppliers who helped with website, collateral, software applications, and product prototypes. Those bills eventually get paid, but their creations are not listed as assets on the balance sheet.

These creations fall under the category of intangible assets along with your trade secrets, know-how, internal systems, customers, supplier lists, and more. Intangibles are not limited to intellectual property (IP), however IP in the form of patents, trademarks, and copyrights are an important subset of intangible value.

Valuation

How do we then hear of startups without any revenue or assets on their balance sheet that are valued in the millions? Do not stop at startups, most large companies have less than twenty percent of their value in tangible assets listed on their balance sheet.

The value is in the intangibles. Andrew used
Google as an example. Think of how much of the Google’s value is in intangible assets. Or in other words what are their tangible assets—servers, land, buildings, furniture, and the like? Likely nowhere near the $390 billion market value as of today’s date.